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By JoAnn Lombardi, President VR Business Brokers/Mergers & Acquisitions
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VR Explains How They Can Provide the Tools to Grow Your Company
There are plenty of myths surround private equity investors. Some business owners, for example, fear that if they partner with a private equity group, it might make off with the value of their company by buying low and cutting them out of the rewards when it later sells the company at a premium.
This kind of concern generally is unfounded. Private equity can be an excellent way to obtain the funds and expertise you need to grow your company. Before taking the leap, however, you should know the facts about these types of investors that we provide to our clients at VR M&A Advisors.
Private Equity Basics
Private equity investors buy shares in a private company intending to help grow and, eventually, sell the business. Limited partners provide the funds, and general managers select and manage the investments.
Private equity groups usually take a controlling or significant interest in companies in one of three ways:
- Venture capital. Here, investors focus on early-stage companies expected to produce strong revenue in a few years, or later-stage companies that are likely to generate increased profit in a year or two.
- Buyout and acquisition financing. Private equity investors use a new business plan and, sometimes, new management to improve a company’s financial performance.
- Expansion or merchant banking capital. With this approach, investors focus on established companies expanding their operations or entering new markets.
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If your planned acquisition encounters turbulence because your target’s finances have suddenly taken a nosedive, you might want to consider one of a buyer’s last-ditch remedies – the material adverse change (MAC) clause. Buyers should never claim a MAC without careful consideration, and they must understand that it won’t guarantee an escape from a bad deal without penalties. But given current economic conditions, you should become familiar with the MAC option.
Long History
MAC clauses have been included in sales agreements for decades but rarely invoked – until recently. With worsening market conditions, more buyers are now willing to claim them.
Kohlberg Kravis Roberts (KKR) and Goldman Sachs claimed a MAC to kill their proposed $8 billion acquisition of audio equipment maker Harman International Industries. Others have used the MAC claim to negotiate better terms. Private equity firm Lone Star, for example, negotiated a 22% purchase price reduction after alleging its acquisition target, Accredited Home Lenders, had experienced a MAC.
Nuts and Bolts
MAC clauses aren’t just for large deals: Most transactions include one of these provisions. These clauses generally have two main elements:
1. A definition of what constitutes a MAC for the purposes of the deal. Generally, these provisions describe a MAC as a relatively sudden event that quickly and negatively affects a business’s performance. For example, in the early part of the decade, Dynegy proposed to buy Enron. But once Enron disclosed that it had failed to mention some of its liabilities and its debt had been downgraded to “junk” status, Dynegy invoked a MAC clause. It argued that Enron was worth far less than the company had originally reported.
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Business Broker vs M&A Advisor: Finding a Partner to Help You Sell Your Business
There are plenty of misconceptions and generalizations about the differences between a business broker and an M&A advisor. This can make it challenging to know who you should partner with to sell your business.
Both brokers and advisors help with:
- Valuation
- Creating marketing materials
- Targeting buyers
- Negotiating and closing deals
How they go about certain processes does change significantly, often because brokers and advisors work with different types of businesses. A business with an EBITDA of $4 million, a large management team, and highly sought-after intellectual property requires different considerations than one with a smaller EBITDA and a straightforward product line.
The goal is to understand when to use a broker and when to use an advisor, so you can assess your business and determine the best option for achieving your desired exit.
In this post, we cover:
- Definitions
- Key differences between brokers and advisors
- How Axial helps you find the right partner for your business
To write this post, we used data from our network of brokers and advisors, which includes over 1,100 investment banks and M&A advisory firms, as well as 900 brokerage firms.
If you’re ready to start looking for advisors and brokers to sell your business, reach out to us today. We can provide 3–5 vetted options with experience representing businesses like yours.
Our network of over 2,000 advisors and brokers is vetted based on relevant deal experience, success in securing bids and closing deals, and their professionalism and reputation.
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Metal Manufacturing and Installation Business with Industrial Property in Miami-Dade County, Florida
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This industry-leading metal manufacturing and installation company is a recognized innovator in the metal mechanics industry, with significant expertise across diverse sectors, including construction. The company is ISO 9001:2015 certified, emphasizing its commitment to quality and customer satisfaction.
Operating from a state-of-the-art 30,328 sqft facility, $8M of industrial commercial property (included in the sale), the business provides comprehensive services, including design, fabrication, assembly, delivery, and installation of metal and plastic products. Its extensive and diversified product range includes paneling, cladding, louvers, grilles, railings, fencing, trellis, pergolas, canopies, prefabricated houses, and architectural metal components.
The business boasts a robust clientele, ranging from public companies to hotels and government entities, solidifying its reputation and stability in the market. With its cutting-edge capabilities, the company offers immense growth opportunities for an enterprising new owner. The company has over $6.8 million backlog contracted work, and $110 million open bids that will generate significant cashflow to the new owner. The company has a favorable assumable loan of $4.7 million, with an interest rate of 6.5% over a term of 23 years.
The business is supported by an experienced team of 50 full-time employees, 1 part-time employee, 4 supervisors, and 2 managers, ensuring smooth and efficient operations.
Financials shown represents 2024 annualized numbers. 2024 January-September revenue is $5.9M and adjusted EBITDA is $1.3M.
All prospective buyers are required to submit a signed NDA, a financial statement or proof of funds, and a brief bio. Additional information about the business will only be shared with financially vetted and experienced buyers who meet these criteria.
For more information contact: Baris Guler
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VR Office in San Antonio, TX Sold a SBA Pre-Approved Established Pool Construction Company
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Introducing a thriving dry-cleaning business, renowned for its prompt same-day service upon request. This company features a GreenEarth-branded machine, offering a top-quality, environmentally friendly cleaning experience. Operated by the same dedicated owners for 29 years, this well-established venture is now on the market as the proprietors prepare for retirement.
Situated in a vibrant neighborhood shopping center, the business enjoys excellent visibility along with ample customer parking. It occupies a prime end cap unit in the center, enhancing accessibility. The operation runs six days a week and is supported by a team of three committed full-time employees, making it a seamless, turnkey opportunity for potential investors.
This sale represented a unique chance to acquire a reputable and stable dry-cleaning business, with an added focus on retail sales.
Congratulations to Javier Luna for your successful closing.
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Ai in M&A and Business Brokerage
by Gundo Kahle, CEO CBA Cross Borders Associates
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Artificial intelligence (AI) is transforming mergers and acquisitions (M&A) and business brokerage, revolutionizing how deals are sourced, analyzed, and executed. By streamlining processes and enhancing decision-making, AI empowers professionals to uncover new opportunities and focus on strategic priorities rather than manual tasks.
AI’s ability to automate and augment analysis accelerates due diligence. Natural language processing (NLP) tools extract critical insights from unstructured data, such as contracts, financial statements, and regulatory documents. This automation not only reduces the time required for due diligence but also enhances accuracy by identifying potential risks and ensuring compliance with legal and regulatory standards.
Valuation processes have become more sophisticated with AI’s predictive capabilities. Machine learning algorithms analyze historical data and simulate scenarios, providing dynamic insights into market trends and how a potential acquisition might perform under various conditions. These tools equip decision-makers with data-driven analytics to make more informed choices.
In identifying acquisition targets, AI excels at analyzing vast datasets to match financial performance, market trends, and strategic alignment. This enables dealmakers to efficiently evaluate potential opportunities that align with their goals. Furthermore, AI-powered tools provide actionable insights into market behaviors and valuation trends, helping buyers and sellers optimize their strategies.
AI plays a pivotal role during the negotiation phase as well. By modeling scenarios and projecting outcomes, it assists stakeholders in structuring optimal deal terms. This technological support enhances precision and minimizes risks in decision-making.
The automation of routine tasks, such as due diligence and financial modeling, streamlines workflows, reduces costs, and minimizes human error. As a result, brokers and M&A professionals can dedicate more time to strategic decision-making and relationship management, rather than administrative tasks.
Post-merger integration, often the most challenging phase of M&A, is also benefitting from AI. By analyzing cultural fit, streamlining operations, and optimizing workflows, AI provides actionable insights that improve employee engagement and reduce operational redundancies. AI-driven tools allow organizations to monitor integration progress in real-time and adapt strategies for smoother transitions.
AI’s impact on the M&A lifecycle is not merely supportive—it is transformative. By delivering speed, precision, and data-driven strategies, AI is redefining success in business transactions. However, its growing prevalence underscores the importance of addressing ethical considerations, data privacy, and algorithmic bias to ensure responsible implementation.
Through the integration of AI, businesses can achieve greater efficiency, reduce costs, and significantly enhance the likelihood of successful outcomes. The ongoing evolution of AI in M&A and business brokerage promises to shape a new paradigm in the field, where innovation drives value creation at every stage.
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VR is the Only Remaining Founding Firm of The International Business Brokers Association (“IBBA”).
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Have You Ever Considered Selling Businesses?
Small businesses make up over 56% of the annual U.S. GDP and every year a large amount of them change hands. VR is the industry leader in facilitating such transactions. Click here for more information on how to join VR.
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